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3/16/11

...yeah, here it is. Just cleaned out a couple of minor typos and redacted a ticker symbol we're currently buying, the rest is as stands for your enjoyment or boredom or whatever.

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Good morning, half an hour before the opening bell.

I'd like to make a few market comments and revisit my playbook for gold as seen in IKN97.

A word or two on potential selling. It's worth reflecting that an exit strategy in troubled times is not a bad thing. However, making up reasons for sudden selling on the spur of the moment is nearly always a bad investment tactic (its common name is "panicking"). I'd also like to make it clear that I am currently not a seller of my portfolio stocks, however I'm currently not a buyer, i wasn't a buyer yesterday bar a very small starter position in XXX.v (liquidity was poor in XXX, i held back) and I'm not looking for bargains this week. I do have a thought-out strategy for liquidation if it becomes necessary, but there's no way I abandon value position with gold still very high (1400 might have gone this morning, but 1300 is enough for me on most issues).

However I am not you, you are not me and our circumstances are different, of that I'm sure. I'd only suggest that you think through any exit strategy and not rush into one. If after reasoning you believe that selling is the best call for you today, that's fine.

I'd now like to re-check on the "gold playbook" that was featured in IKN97 in light of the Japan events. Here it is reprinted with newly added notes and then more commentary afterwards. The Sunday lines are in bold type, the new comments are in red.

First up the very short term that favours gold.

Check, but it really was very short term and lasted precisely one day. Yesterday.

Second up the short-term that starts to worry about the velocity of money, factors in the (what I believe are wholly false flag) signals from the Fed and their pals that QE3 isn’t going to happen, starts to buy the deflation angles and drops some.

Check. This is happening now. It's happening more quickly than I thought it might, but still fits logically into the "very short term" then "short term" as laid out on Sunday. What we're seeing this morning is a deflationary episode and that, ladies and gentlemen, is based on deceleration of money (aka world economies)

Third up, short-term phase two which is strong market support that’s driven by Chinese bullion purchases and keeps gold from dropping to the levels expected by the bears.

This may now happen simultaneously with stage four below, due to what I see as a condensed timeline.

Next, the medium term that sees more quantative easing because there’s no way round it, the world of finance policymakers (start with Bernanke, check off the list at your leisure) will need to offer up all the financial liquidity it can muster.

It's notable that today the Fed FOMC happens. With the Bank of Japan pumping liquidity into its own economy and the Fed's recent history of doing the same to avert crises, iIwouldn't be at all surprised to see Bernanke and his friends taking measures to halt the deflationary pulse in its tracks. This is a tough call and it's a dangerous to try and second-guess the Fed, but what I would suggest is that there are plenty of big money people thinking the same lines this morning, which will quickly become an desire or even expectation of a Bernanke put and not just a hope. If the Fed then does not deliver, things could get smelly later this week.

And that’s as far as my playbook goes for the moment, leaving the long-term gold calls in the hands of those who like using the word Weimar to explain their bad grasp on economics. The bottom line on gold is that I expect it to be choppy in the near-term, but nothing drastic to the downside and a decent shot at holding $1400 and then moving higher.

As is clear today, my decent shot at gold holding 1400 has gone. I'm checking on Kitco as I write now and have seen 1382 followed by 1388 a couple of minutes later, so volatility is clear.

Then the medium term sees it higher no doubts. In other words, I’m a holder of gold bullion and plenty of junior exposure to the sector and it’s going to stay that way.

This has not changed

The bottom line to the playbook is that things are happening faster than I imagined but at least the train of logic is holding together so far. The Fed meeting today will have many eyes upon it and as we know Bernanke doesn't even like the sound of the word 'deflation', let alone its potential effects and the ball is now in his court, I see no reason to panic out of long positions until we know more from there. However there are wild cards in this week's scenario, not least of which the nuclear power plant situation in Japan. It pays to closely observe newsflow at the moment and to remember that playbooks are not orders set in stone and can be changed to adapt to dynamic circumstances.

Finally and to repeat the same sentiment, if you sell today that's fine by me and you won't hear a word of complaint as long as you are being a rational person about your sales and not just kidding yourself into one while you panic. In the words of John Donne, 'know thyself'.

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